RBI  supersedes  board of Reliance Capital

The Reserve Bank of India (RBI) said it would refer Reliance Capital Ltd to bankruptcy courts after taking control of the troubled financial services company on Monday, citing governance concerns and payment defaults.

Nageswara Rao Y., a former executive director of Bank of Maharashtra, has been named the company’s administrator, the banking regulator said in a statement.

Reliance Capital is the third shadow lender to be seized by the RBI, after Dewan Housing Finance Corp. Ltd and Srei Infrastructure Finance Ltd.

The country has been grappling with a shadow-lending crisis since 2018 after Infrastructure Leasing and Financial Services Ltd collapsed, triggering a credit squeeze that led to the bankruptcy of Dewan Housing and some other lenders.

On 4 October, bondholders of Reliance Capital urged RBI to consider referring the company for insolvency resolution, citing challenges faced in the asset monetization process and non-cooperation from the company. Vistra ITCL, the trustee for bondholders, constituting 96% of Reliance Capital’s debt, has put up several company assets, including its insurance ventures, asset reconstruction firm and securities arm on sale.

Vistra, which RBI invited for another meeting on 7 October, reiterated its challenges in running the asset monetization process and highlighted non-cooperation from Reliance Capital. Vistra had hired SBI Capital Markets and JM Financial Ltd to carry out the sale process of Reliance Capital’s assets and investments in various entities. However, the asset monetization process was delayed due to numerous litigations.

The sale process initiated by the bondholders in December last year saw preliminary interest from suitors such as private equity firms, including Blackstone, Bain Capital, and Oaktree.

Reliance Capital holds majority stakes in two insurance firms, an asset reconstruction company, a brokerage firm, and a minority stake in a commodity exchange. The holding company owes its bondholders ₹16,260 crore, out of the total ₹26,887 crore on a consolidated level as of 31 March.

The lenders of the two separately listed subsidiaries of Reliance Capital, however, managed to find a buyer for the mortgage lending and non-bank units. Lenders of Reliance Home Finance and Reliance Commercial Financial selected Authum Investment and Infrastructure as successful bidders for both companies.

According to Reliance Capital’s consolidated earnings for the quarter ended September, the company’s loss narrowed to ₹1,156 crore from ₹2,534 crore in the year earlier. Much of the loss originated from the “finance and investments” and “commercial finance” divisions.

Reliance Capital has pledged its entire equity holding in Reliance General Insurance Co. Ltd in favour of IDBI Trusteeship Services Ltd against dues guaranteed by the parent. On 19 November 2019, the trustee invoked the pledge and presently holds the shares of the insurer.

Similarly, Reliance Capital pledged a 3.35% stake in Nippon life India Asset Management Ltd, favouring IndusInd Bank. The bank had invoked the pledge, which the company has challenged in the Bombay high court.